Sunday, July 16, 2017

"The Alternative To Alternative Data For Investment Managers"

In emerging, and especially in frontier, market investing you had better know someone.
Or take the time-honored approach and buy the local banks while praying the books have some correlation with reality.
Ditto for Chicago.

The pace of growth in alternative data supply signals a broadening
acceptance that looking beyond P&L in a systematic way supports
overall alpha generation. Squeezed by the increasing enthusiasm for AI
backed systems and pressure to justify fees in a lower returns
environment, discretionary managers see ‘Alt Data’ as one differentiator
to help attract and retain investors in a highly competitive hedge fund market.

Alternative Data is by definition fundamental research, reliant upon
high internet penetration in markets to collect, read and assess
information at a significant enough scale to provide actionable insight
for investment decisions. This makes US and European markets prime for
data exploitation of this nature, the very markets where alternatives to
traditional financial analysis are increasingly necessary, and supports
funds in ultimately sustaining higher levels of return, let alone their
own existence.
Emerging markets do not provide the same opportunity for data mining;
the inherent lack of internet penetration and poor access to sources of
information lower reliability and impede performance. The need for
diversification of information still exists however, and whilst this has
typically been in the context of mitigating risk when deploying cash, increasingly it will be required in pursuit of enhance investment performance.

Who are the ultimate owners of the target company and what political links do they have?What
is the true state of isolated assets? Does corruption exist within the
supply chain? What threats are posed to the company from local actors,
and how can they be mitigated?

Private inward investment is well used to employing strategic
intelligence consultancies to undertake enhanced due diligence and
market entry services in all corners of the developing world. The
additional resource deployed into offline information acquisition to
thoroughly comprehend both companies and individuals is increasingly
fruitful in determining fact from fiction. It enables analysts to
evaluate in theory and in practise and has protected some of the very
largest deals to have happened, or not happened, in the last 20 years.
On the ground, situational awareness collected by regional specialists
cannot be equalled when navigating at this level of uncertainty....